Eurozone Inflation Stats Suggest End to Rate Hikes

AP

Wednesday, 31 Aug 2011 | 7:30 AM ETThe Associated Press

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Inflation in the 17 euro countries remained steady at 2.5 percent in August, adding to expectations the European Central Bank will hold off from raising interest rates — and may even consider cutting them — as economic growth slows.

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Wednesday's figure is still above the ECB's target of just below 2 percent, but underlines that prices in the eurozone are not rising as quickly as earlier in the year. In June, inflationwas 2.7 percent.

Although European Union statistics agency Eurostat did not release a breakdown of the inflation data, the number adds to expectations that the ECB may not raise its key interest rate beyond the current 1.5 percent any time soon.

ECB President Jean-Claude Trichet said Monday that the central bank was reassessing inflation risks for the euro area, after insisting in previous months that there were strong upward pressures on prices.

Since then, however, the economic recovery in the eurozone has slowed amid concerns about the currency union's debt troubles. Even the region's economic powerhouse Germany expanded a meager 0.1 percent during the second quarter, signaling that the dire economic conditions in countries like Greece, Ireland and Portugal are starting to affect the continent's core.

"These data should help to convince the ECB that its earlier fears of a sharp rise in inflation were unwarranted, perhaps opening the door to interest rate cuts in the not too distant future," Jennifer McKeown, senior European economist at Capital Economics, wrote in a note.

Underlining the weakness of Europe's recovery were unemployment statistics showing hardly any improvement from a year earlier.

Eurostat said that eurozone unemployment remained high at 10 percent in July, after revising June's figure up from 9.9 percent. That's not far from the 10.2 percent unemployment in July last year.

Unemployment was highest in Spain, where 21.1 percent of people were out of a job. It was lowest in Austria, at just 3.7 percent, and the Netherlands, where it stood at 4.3 percent.

In the 27-country EU, which also includes non-euro countries, unemployment remained at 9.5 percent, after the June rate was revised up from 9.4 percent.

Contact Europe: Economy

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